Textbook Publisher Cengage Files Bankruptcy to Cut Debt

Textbook publisher Cengage Learning Inc. on Tuesday filed for bankruptcy protection as part of a prearranged restructuring it said would help it eliminate more than $4 billion of debt.

The company, which was acquired in a 2007 leveraged buyout by private equity firm Apax Partners and Omers Capital Partners, sought Chapter 11 protection from creditors with the U.S. bankruptcy court in Brooklyn, New York.

Cengage said it had already received support for its plan from an informal group of creditors holding about $2 billion in secured debt.

According to a source close to the matter, that group is comprised of holders of both bond and loan debt and includes JPMorgan Chase & Co., KKR Asset Management, BlackRock Inc. and Oaktree Capital Management.

The plan would eliminate more than two-thirds of the Stamford, Connecticut-based company's $5.8 billion in total debt. Non-U.S. units are not part of the bankruptcy case.

Textbook publishers have struggled as more readers get information online. Cengage, with nearly 5,500 employees and about $2 billion in annual revenue, bills itself as the second-largest producer of course materials in U.S. higher education.

It has made headway into digital learning through its CengageCourse line, but other factors have hamstrung the industry, including spending reductions by state and local governments and the growth of the used book and book rental markets.

Alvarez & Marsal is providing restructuring advice for Cengage, while Lazard Ltd. is serving as financial adviser and Kirkland & Ellis is its legal counsel. The company said in a statement it does not expect to need outside funding for its bankruptcy, and that it would continue to operate its business.

It also filed court papers on Tuesday seeking permission to maintain its insurance programs and keep paying its shipping, warehousing and other bills.

Amers and Omers bought Cengage from the former Thomson Corp. as part of a $7.75 billion transaction.

Cengage had been known as Thomson Learning, and Thomson has since been renamed Thomson Reuters Corp. Thomson has a $1.46 million unsecured claim in Cengage's bankruptcy, court papers showed.

About $1.2 billion of Cengage's debt load is unsecured, according to a source close to the matter. Its largest such obligations are $292 million in senior unsecured notes and another $132 million in subordinated unsecured notes, according to court filings.

Other notable unsecured creditors include Harvard University economics professor N. Gregory Mankiw, who is owed about $1.6 million in royalty payments stemming from Cengage publishing deals, and Pennsylvania State University history professor Jackson Spielvogel, owed $627,000 in such royalties. Mankiw and Spielvogel could not immediately be reached on Tuesday.